340B Spotlight: How for-profit middlemen are taking advantage of a program meant to support nonprofit entities and patients

Congress created the 340B program to help safety-net providers, like federally-funded safety net clinics, access discounts on prescription medicines for vulnerable or uninsured patients. Unfortunately, many for-profit pharmacies and other third parties are taking advantage of the program by capturing some of these significant 340B discounts.

In 2010, a misguided policy opened the doors to allow all 340B entities to contract with an unlimited number of for-profit retail pharmacies, enabling these pharmacies to participate in and financially benefit from the 340B program. Despite the lack of any guaranteed benefit for patients, the number of contract pharmacy arrangements continues to grow. In fact, roughly 25,000 pharmacy locations are now registered as contract pharmacies for 340B hospitals and clinics, and the Government Accountability Office (GAO) revealed that in 2017 “the five biggest pharmacy chains — CVS, Walgreens, Walmart, Rite-Aid, and Kroger —represented a combined 60 percent of 340B contract pharmacies, but only 35 percent of all pharmacies nationwide.” And the number of contract pharmacies these chain pharmacies represent has only grown in recent years.

On top of the increasing role of retail pharmacies, specialty pharmacies owned by pharmacy benefit managers (PMBs) have also started aggressively contracting with 340B hospitals for their own financial benefit. Adam Fein with Drug Channels recently noted that more than 20% of contract pharmacy arrangements are between 340B facilities and the five largest specialty pharmacies – pharmacies that are owned by CVS Health, Diplomat Pharmacy, Express Scripts, OptumRx and Walgreens Boots Alliance/Prime Therapeutics. In a follow up piece, Fein goes on to explain how these specialty pharmacies and PBMs are making a profit off of 340B while also enabling a system where “a 340B hospital can earn thousands of dollars from a prescription that it never dispenses.”

In a recent op-ed, Andrew Behrman, president and CEO of the Florida Association of Community Health Centers, highlighted how PBMs and contract pharmacies continue to take advantage of the 340B program at the expense of patients and federal clinics that participate in the program. Behrman writes, “But the 340B discount savings don’t always go back to the patients or medical facilities – as the program is designed, but are increasingly being kept by middlemen, such as [PBMs]. These middlemen redirect the 340B benefit away from Community Health Centers, hurting our ability to serve Floridians in need.”

For a program that was meant to help vulnerable or uninsured patients by supporting nonprofit hospitals and clinics like community health centers, an awful lot of for-profit entities are getting a piece of the pie. Unfortunately, little to no oversight exists to monitor contract pharmacy arrangements or the role of PBMs within the 340B program. As GAO explained, “As currently structured, weaknesses in HRSA’s oversight impede its ability to ensure compliance with 340B Program requirements at contract pharmacies.”

Policymakers must reconsider the role of contract pharmacies in 340B to ensure the program is benefiting patients the way Congress intended.

To learn more about how to fix the 340B program, visit PhRMA.org/340B.

Nicole Longo Nicole is director of public affairs at PhRMA focusing on Medicare, 340B, importation and more. She previously worked for a D.C.-based public affairs firm where she assisted a wide range of clients with communications efforts on everything from trade policy to agriculture policy to health care policy. Outside the office, Nicole can be found trying new restaurants (usually Italian), taking an occasional barre class and cheering on the Cincinnati Bengals.